Technical Olympic posts loss, but stock rises

JohnSpence

BOSTON (MarketWatch) -- Technical Olympic USA Inc. reported a first-quarter loss Thursday, but shares of the residential builder were up more than 5% in afternoon dealings.

The financial results showed that the Hollywood, Fla.-based company
TOA, -2.40%
continues to struggle with a difficult housing market and with an investment in a joint venture.

"These are challenging times for homebuilders," said Antonio Mon, the company's chief executive, in the earnings release.

However, one analyst noted that the results after charges topped expectations and the company's in the midst of selling off its struggling Dallas business, setting the stage for buying in Technical Olympic's shares.

The company reported a first-quarter loss of $66 million, or $1.11 a share, compared with net income of $55 million, or 89 cents, earned in the year-earlier period.

The latest results included a $78.9 million estimated pre-tax contingency loss related to the potential restructuring of the Transeastern joint venture, as well as $42 million in charges resulting from inventory and land impairments.

Analysts surveyed by Thomson Financial had been looking for a quarterly loss of 53 cents a share.

Excluding the impact of inventory impairments, deposit write-offs and abandonment costs, and estimated loss contingency, net income was 36 cents a share, the company said.

Paul Nouri, analyst at Sidoti & Co., said the company's core net income without charges topped his estimate of 17 cents a share. Other factors pushing the stock higher included the sale of the Dallas division, which should improve liquidity, as well as high short interest in the stock, he said.

Technical Olympic said total quarterly revenue decreased 5% to $600.2 million. Meanwhile, consolidated net sales orders fell 17%, but the cancellation rate improved to 29% from 49% on a quarter-over-quarter basis. The company's unsold inventory of homes declined 21% from the fourth quarter.

'Difficult to gauge' a recovery

"Currently, it is difficult to gauge the timing of a potential housing recovery, as conditions continue to vary greatly," Mon said, adding that the company's "concerned" that housing inventories appear to bumping up again in most of its markets while sales were disappointing in March and April.

"This leads us to believe that we have not reached the point of stabilization as we had previously anticipated and that the difficult conditions could persist for the foreseeable future," the CEO said.

Citing market uncertainty, the company did not provide a profit outlook for 2007.

Similarly, Toll Brothers Inc.
TOL, +0.15%
earlier this week backed off previous comments that the nation's housing market appeared to be dancing near the bottom. See related story.

Technical Olympic said it's entered into an agreement to sell its Dallas operations for about $55.7 million in net proceeds. "The decision to sell our Dallas division is part of the execution of our asset-management strategy and will enable us to sharpen our focus on gaining share in the other Texas markets where we have been more profitable," Mon said.

In August 2005, Technical Olympic acquired a 50% stake in Florida-based home-building joint venture Transeastern for about $856 million, and the deal was financed mostly with debt.

Last year, the company said it received letters from Deutsche Bank demanding payment for guarantees provided in connection with the financing of the joint venture. Technical Olympic, after initially denying the allegations, has entered into negotiations with holders of Transeastern debt.

"As part of these discussions, [Technical Olympic] has proposed a structure in which either the joint venture or the successor to some or all of its assets would become [the company's] wholly or majority-owned subsidiary," Technical Olympic said in Thursday's earnings release.

"The proposal also contemplates paying the joint venture's $400 million of senior debt in full through the incurrence of additional indebtedness," it said, adding it's evaluating various financing alternatives.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.